The squeeze on UK wages is set to continue for another five years, a think tank has warned. Average pay will be more than £20 a week lower in 2022 than it was at the start of the financial crisis in 2007 as the UK economy continues its faltering recovery, the Resolution Foundation said on Monday.

It predicted that figures to be announced in next week’s Budget would confirm that Britain is experiencing the worst decade for productivity growth since the Napoleonic Wars in the early 19th century “with terrible implications for family living standards”. 

The Office for Budget Responsibility (OBR) has signalled that it is likely to have bad news for Chancellor Philip Hammond in the form of a reduction to its forecast for annual productivity growth to 1 per cent – half its level before the financial crisis. 

If the OBR revised its productivity prediction in line with the Bank of England’s recent downgrade, the economy would be on track to be £44bn smaller in 2022 than previously predicted, the Resolution Foundation said. 

This will give Mr Hammond’s less headroom to work with in order to meet his own fiscal rules for the public finances but the think tank argued that more focus should be paid to the implications for families.

The productivity hit could leave hourly wages 5 per cent lower in 2022 than previously expected, the foundation said.

It also described the recovery of GDP per person as “extraordinarily weak”, when compared to the aftermaths of previous recessions.

Some of the hit to living standards should be compensated for by higher-than-expected levels of employment, the foundation said. 

The think tank’s chief economist, Matt Whittaker, said: “While anxiety on the public finances may have been overdone, there has been nowhere near enough focus on family finances. Weekly pay is projected to be almost £25 lower in 2022 than previously expected, still £22.70 below the pre-crisis peak. Addressing this unprecedented living standards squeeze – with action on housing and social security – should be front and centre of the chancellor’s response.”